Following is the text of European Central Bank President Mario Draghi’s comments from his monthly news conference in Ljubljana, Slovenia, today:
MARIO DRAGHI, PRESIDENT, EUROPEAN CENTRAL BANK: Can I - do you mind? Can I start? OK, thank you. Thank you.
Ladies and gentlemen, the vice president and I are very pleased to welcome you to our press conference. I would like to thank Governor Kranjec for his kind - more than kind, fantastic hospitality, and express our special gratitude to his staff for the excellent organization of today’s meeting of the Governing Council. We will now report on the outcome of today’s meeting.
Based on our regular economic and monetary analysis, we’ve decided to keep the key ECB interest rates unchanged. Owing to high energy prices and increases in indirect taxes in some euro area countries, inflation rates are expected to remain above 2 percent throughout 2012, but then to fall below that level again in the course of next year and to remain in line with price stability over the policy- relevant horizon.
Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to 2 percent over the medium term. Economic growth in the euro area is expected to remain weak, with ongoing tensions in some euro area financial markets and high uncertainty still weighing on confidence and sentiment.
Our decisions as regards outright monetary transactions, OMTs, have helped to alleviate such tensions over the past few weeks, thereby reducing concerns about the materialization of destructive scenarios. It is now essential that governments continue to implement the necessary steps to reduce both fiscal and structural imbalances and proceed with financial sector restructuring measures.
The Governing Council remains firmly committed to preserving the singleness of monetary policy and to ensuring the proper transmission of the policy stance to the real economy throughout the euro area. OMTs will enable us to provide, under appropriate conditions, a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area.
Let me repeat again what I’ve said in past months. We act strictly within our mandate to maintain price stability over the medium term, we act independently in determining monetary policy, and the euro is irreversible.
We are ready to undertake OMTs once all the prerequisites are in place. As we said last month, the Governing Council will consider entering into OMTs to the extent that they are warranted from a monetary policy perspective, as long as program conditionality is fully respected. We would exit from OMTs once their objectives have been achieved or when there is a failure to comply with the program. OMTs will not take place while a given program is under review and would resume after the review period once program compliance has been assured.
Let me now explain our assessment in greater detail, starting with economic analysis. Euro area real GDP contracted by 0.2 percent quarter on quarter in the second quarter of 2012, following flat growth in the previous quarter. Economic indicators in particular survey results confirm the continuation of weak economic activity in the third quarter of 2012, in an environment characterized by high uncertainty.
We expect the euro area economy to remain weak in the near term and to recover only very gradually thereafter. The growth momentum is supported by our standard and nonstandard monetary policy measures, but is expected to remain dampened by the necessary process of balance sheet adjustment in the financial and nonfinancial sectors, the existence of high unemployment, and an uneven global recovery.
The risks surrounding the economic outlook for the euro area continue to be on the downside. They relate in particular to ongoing tensions in several euro area financial markets and the potential spillover to the euro area real economy. These risks should be contained by effective action by all policymakers in the euro area.
Euro area annual HICP inflation was 2.7 percent in September 2012, according to Eurostat’s flash estimate, compared with 2.6 percent in the previous month. This is higher than expected and mainly reflects past increases in indirect taxes and euro-denominated energy prices. On the basis of current futures prices for oil, inflation rates could remain at elevated levels before declining to before 2 percent again in the course of next year.
Over the policy-relevant horizon, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain moderate. Current levels of inflation should thus remain transitory and not give rise to second-round effects. We will continue to monitor closely further developments in costs, wages and prices.
Risks to the outlook for price developments continue to be broadly balanced over the medium term. Upside risks pertain to further increases in indirect taxes owing to the need for fiscal consolidation. The main downside risks relate to the impact of weaker-than-expected growth in the euro area in the event of a renewed intensification of financial market tensions and its effects on the domestic components of inflation. If not contained by effective action by all policymakers in the euro area, such intensification has the potential to affect the balance of risks on the downside.
Turning to the monetary analysis, recent data confirm the subdued underlying pace of monetary expansion. In August, the annual growth rate of M3 decreased to 2.9 percent, from 3.6 percent in July. While this decline was mainly due to a base effect, monthly inflows were also relatively contained. Conversely, strong monthly inflows into overnight deposits contributed to a further increase in the annual rate of growth of M1 to 5.1 percent in August, compared with 4.5 percent in July. This increase reflects a continuing high preference for liquidity in an environment of low interest rates and high uncertainty.
The annual growth rate of loans to the private sector declined in August to minus 0.2 percent, from 0.1 percent in July, reflecting a decrease in the annual rate of growth of loans to nonfinancial corporations to minus 0.5 percent from minus 0.2 percent in July. By contrast, the annual growth of loans to households remained unchanged, at 1.0 percent in August.
To a large extent, subdued loan dynamics reflect the weak outlook for GDP, heightened risk aversion, and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. At the same time, in a number of euro area countries, the segmentation of financial markets and capital constraints for banks restrict credit supply.
The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalization of all funding channels, thereby contributing to an adequate transmission of monetary policy to the financing conditions of the nonfinancial sector in different countries of the euro area. It is thus essential that the resilience of banks continues to be strengthened where needed.
To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.
Other economic policy areas need to make substantial contributions to ensure a further stabilization of financial markets and an improvement in the outlook for growth.
As regards fiscal policies, euro area countries are progressing with consolidation. It is crucial that efforts are maintained to restore sound fiscal positions in line with the commitments under the Stability and Growth Pact and the 2012 European Semester recommendations. A rapid implementation of the fiscal compact will also play a major role in strengthening confidence in the soundness of public finances.
At the same time, structural reforms are as essential as fiscal consolidation efforts and measures to improve the functioning of the financial sector. In the countries most strongly affected by the crisis, noticeable progress is being made in the correction of unit labor cost and current account developments. Decisive product and labor market reforms will further improve the competitiveness of these countries and their capacity to adjust.
Finally, it is essential to push ahead with European institution-building. The ECB welcomes the commission proposal of September 12, 2012, for a single supervisory mechanism, SSM, involving the ECB, to be established through a council regulation on the basis of Article 127(6) of the treaty. The Governing Council considers an SSM to be one of the fundamental pillars of a financial union and one of the main building blocks towards a genuine Economic and Monetary Union.
We will formally issue a legal opinion in which we will, in particular, take into account the following principles: a clear and robust separation between supervisory decision-making and monetary policy; appropriate accountability channels; a decentralization of tasks within the Eurosystem; an effective supervisory framework ensuring coherent oversight of the euro area banking system; and full compatibility with the single market framework, including the role and prerogatives of the European Banking Authority.
As the commission proposal sets out an ambitious - an ambitious transition schedule towards the SSM, the ECB has started preparatory work so as to be able to implement the provisions of the council regulation as soon as it enters into force.
We are now at your disposal for questions.
STAFF: (OFF-MIKE) oh, OK. Just a quick reminder. Two questions per media, no more. And present yourself before asking your question. Thank you. Let’s go to the second row, yes, please.
QUESTION: Can you hear me?
STAFF: Yeah, it’s OK.
QUESTION: Stefan Weicker (ph) with Bloomberg. Two short questions, Mr. Draghi. The first one, you mentioned downside risks to the economy again. Have there been any discussions today about a possible rate cut in the months to come? And the second one on Spain. Do you find the Spain bond yields appropriate at the moment? Or are they still hampering your monetary policy transmission? Thank you.
DRAGHI: Well, on the first question, the answer was no. And on the second question, I will not comment. Thank you.
But let me say one thing I forgot. If the - Marko will answer questions about Slovenia today. So you - you will just have to ask him about Slovenia. Thank you.
STAFF: OK. Your neighbor, please?
QUESTION: Mansa Renko (ph), MNI (ph). Mr. Draghi, was the decision to leave rates unchanged unanimous, is the first question. And the second is, what do you think about publishing the minutes much sooner than 30 years after the respective meetings?
DRAGHI: I’m sorry. What is the second question?
QUESTION: What do you think about publishing the minutes much - much sooner or earlier than 30 years after the respective meeting? Thank you.
DRAGHI: Yeah. Yeah. Now, on the first - on the first question, I would say that there was no discussion, so in a sense, it was a unanimous decision about interest rates.
But on the second question, you see, it’s - clearly, there have been statements by several Governing Council members and by myself showing an open mind about this point. But it’s a complex process. And we are actually thinking about this, how to proceed.
There are pros and there are cons. But what you have to keep in mind is that the ECB is already a very transparent institution. Just think about this press conference every month, that by itself. And also, there are hearings in parliament, interviews, speeches, so I think there may be some benefit as far as communication is concerned from having greater transparency, at the same time we have to value and assess what it means in our specific context, the European context, which is different from the United States, it’s different from the U.K.
STAFF: OK, let’s go to your neighbor.
QUESTION: Tom Fellis (ph) from Dow Jones. Mr. Draghi, last month, when you announced the OMT, you said that matters were now effectively in the hands of governments. How concerned are you at the way that governments have responded since then? I mean, some finance ministers have suggested that the ESM might not be covering legacy bank debts, for instance, and Spain still hasn’t applied for a bailout.
My second question is on Greece. And how would - how would the ECB feel about rescheduling the repayments on the Greek bonds? And would that qualify as monetary financing? Thank you.
DRAGHI: On the second question, the answer is, yes, it would qualify as monetary financing. We’ve said several times that any voluntary restructuring of our holdings would be equivalent - would be monetary financing.
On the first question, I could say that today we are ready with our OMT. We are - we have a fully effective backstop mechanism in place, once the - all the prerequisites are in place, as well. And that addresses your question. Governments have made substantial progress on a variety of fronts, and we can discuss it later, on a variety of fronts, both what I call - what I would call vulnerable countries and countries that are under a full program of the IMF.
Or you could see actually this progress all across the board, as far as fiscal consolidation is concerned, as far as structural reforms are concerned, and also as far as repairing some of the - some of the flaws of the banking sector. So at this point, it’s really up to the government to decide what they want to do. The mechanism is in place.
Now, your question about the ESM, you know, it’s kind of - we’ll have to assess exactly what it means. And I don’t want to prejudge the technical discussion that will take place, but we have to remind that this is not - it’s not a matter for the ECB. It’s a matter for the governments concerned. It’s governments’ - it’s taxpayers’ money. So they will have to discuss and take a stance on exactly what is meant by legacy assets. Thank you.
STAFF: OK, the same row on the right-hand block, yes, right.
QUESTION: Brian Blackstone with the Wall Street Journal. On the - back to the OMT, you mentioned that there are steps that need to happen before the ECB would active, that it’s in the government’s hands. Does that weaken the effectiveness of the OMT because you make yourselves part of the political process, which can be time-consuming and complicated?
And my second question is on the continued rise in youth unemployment in Europe, the anti-austerity protests. How concerned are you about unemployment, youth unemployment? And is austerity making the problem worse? Thank you.
DRAGHI: The first question is about conditionality. Conditionality - we view conditionality as an essential part of the activation of the OMT. And I made this point since the very beginning.
Conditionality will actually have several roles. First of all, it will reduce the moral hazard by governments. The second thing - the second role it will have is that, really, in a sense, protects the independence of the ECB. Without conditionality, you would certainly have what people call fiscal dominance. With conditionality, the independence of the ECB is protected.
But there’s a third angle to this. You can look at conditionality as a way to create a credit enhancement on the bonds of the country that is actually the object of conditionality. And you can see why. So it’s an - it’s an incentive to pursue the right economic policies which has benefits for all parties concerned.
Now, you are saying that the - just also, look at the - well, certainly there is going to be - rightly so, some political process. And - but look at this from another angle. Imagine that you have - you know that one of the conditions is signing of an MOU with the euro group. And once you have that, you have unanimity, and you have the whole of Europe that’s supporting politically this program. By itself, this is an extremely forceful ingredient in the program.
The second question was about youth unemployment. It’s - we completely share the concerns of this situation. And several times, as a matter of fact, both in independent speeches, several members of the Governing Council have raised the issue of youth - of high unemployment and especially focused on the youth - on the young part of the population.
It’s - it’s an incredible waste of resources. And it will have to be addressed, and it can be addressed by properly reforming the labor market so as to decrease the dual nature the labor markets have taken on the last, I would say, 7, 10 years, in some European countries. So you have to address the dual nature of the labor market, and you have to keep - the challenge, of course, is to address the dual nature of the labor market while keeping it flexible overall.
STAFF: Your neighbor, please?
QUESTION: Michael Seen (ph) from the Financial Times. Mr. Draghi, is the - would a rate cut even be conceivable at the moment, given that the transmission mechanism is broken? I mean, would it - is there any way of - would there be any point in conducting such a thing until OMT has been used or there’s been a sustainable and significant drop in the bond yields of the countries that have got distressed bond markets? Or is that an overemphasis of - of the way you see this broken transmission mechanism?
And second question. We’re in Slovenia at the spot where George W. Bush had his first-ever summit with Vladimir Putin, after which Bush said he looked into Putin’s eyes and could see his soul and knew this was a man he could do business with. I was wondering if there was any such moment today between you and Mr. Weidmann. Thank you.
DRAGHI: I would like to know from you who’s Putin, who’s G.W. Bush.
QUESTION: I’ll leave that to you to decide.
DRAGHI: OK. No, on the - on the first question is, in a sense, it’s - it’s a purely hypothetical question, in the sense, but it can be addressed saying non-standard monetary policy measures are being designed and implemented when the standard ones are not fully effective. Otherwise, we would simply stay with the standard policy measures. So this, in a sense, answers your question.
And the second question is -
QUESTION: But does that mean you can have both at the same time? Sorry.
DRAGHI: I’m sorry?
QUESTION: Can you have both at the same time?
DRAGHI: You mean both are ineffective?
QUESTION: Can you - can you -
Can you carry on using standard measures at the same time as having to deploy non-standard ones?
DRAGHI: Well, we have to see if we can repair the monetary policy transmission channels. We always - we don’t speculate on future changes in interest rate, really. I think that - well, the Governing Council has assessed that the - the price level and the rate of change of prices is in line with the medium-term price stability, according to our definition. So that is the assessment we made about the interest rate. And as I said, we - there was no discussion.
But answering your second question, I’m - I can say that the discussion was - I don’t want to comment on individual positions, of course, but the discussion was very constructive all across the board.
STAFF: OK. Let’s go to the row behind, yeah.
QUESTION: Thank you. My name is Maria Novak (ph). I’m from Reuters. Mr. Draghi, you keep encouraging banks to repair their balance sheets. And I’m wondering, do you think that they should be able to use ECM (ph) funds for that, as for their existing problems, as well?
And my second question regards Spain. Do you think that a precautionary credit line for Spain should be - should be sufficient to solve Spanish financial problems? Thank you.
DRAGHI: On the first question, I think - when I said there has been significant progress, I included - I included the repairing of the banking system. And the statement that EBA president made yesterday are that - basically where he gave the numbers of the recapitalization that has taken place so far, are reassuring from this viewpoint, are reassuring.
So the - the capital - or the capitalization gap that was pretty wide until two years has been significantly reduced by the - by the European - by the euro area banks - by the European banks.
On - on Spain, that’s one example where significant progress has taken place, significant challenges remain ahead, as well, but the progress on the front of fiscal consolidation, on the front of structural reforms, with the announcement of a very large reform program, on the front of the banking sector, with the conclusion of the stress test, is really remarkable, if you think how many measures have been announced, legislated, and implemented in such a short time.
STAFF: Your neighbor now, please?
QUESTION: Eva Kuehnen from Reuters. Mr. Draghi, just to follow up on that question, does that mean - would it be enough for Spain to continue on its reform progress for the ECB to start buying bonds? Or would Spain actually commit to much harsher reforms in order for you to - to intervene?
And my second question would be, about a year ago, you said in - in a similar press conference that you would make periodic checks on whether you’re in sync with the tradition of the Bundesbank or whether you’re deviating from it. And I was wondering what your assessment is today, whether you’re in sync, or how close are you?
DRAGHI: Yeah, on the second point, I can answer right away, that if the tradition of the Bundesbank is to - was to assure price stability, the ECB is fully in sync with that tradition.
On the first question, well, you see, there is a tendency to identify conditionality with harsh conditions, as you said. Conditions don’t need to be necessarily punitive. Actually, many of the conditions have to do with structural reforms, which have both social costs, but also great social benefits. And if they are well designed, the second are going to be greater than the first.
So it’s - third, it - is it - is it enough? That’s up to the Spanish government to decide. And it’s up to the other euro area governments to decide whether the programs - whether - you know the conditions. You know that it’s necessary to make a request to an EFSF/ESM program. We would actively seek the IMF involvement in the process.
But having said that, we have in place now a mechanism which is a fully effective backstop, if these requests come, and the assessment of the Governing Council about the monetary policy transmission channels grants action.
STAFF: Thank you. The row behind, on your left-hand side? Oh, no, the same row, sorry. And after, the row behind.
QUESTION: I’m David Tweed from Bloomberg Television. I was wondering whether you could explain your thinking with regard to Portugal, because Portugal does look as if it’s met the prerequisites for the OMT to work. So why hasn’t the European Central Bank bought Portuguese debt on the secondary market?
And then one, because we’re in Slovenia, the Slovenian government is going ahead with the institution to take over the non-performing loans from the banks in return for providing them with government bonds. Will those government bonds be eligible, if the banks present them, for - as collateral?
DRAGHI: I will answer - I’ll answer the first question. You’ll answer the second.
But the - on Portugal, that’s a case where - where - that’s an example of the significant progress that I’ve hinted at before. Very, very significant progress has taken place. The - also, the overall situation, politically speaking, is a strong situation.
There are serious - obviously, we share completely the concerns that have been expressed about the difficult social situation, as well. But the reform agenda is firmly in place.
The OMT would not apply to countries that are under a full adjustment program until - and that’s the - that’s what I think I did say last time - until full market access, complete market access will be obtained. And this is because the OMT is not a replacement for lack of primary market access.
By the way, on this front, we - we had - among several - several positive news we had in the last few days, we had one in Portugal, namely, yesterday, for the first time, a five-year bond was issued. So it’s -
QUESTION: That’s not full market access under your definition.
DRAGHI: No, that’s not the complete market access, but it’s the beginning of - it’s the beginning of a complete market access. So it’s something that’s actually another reassuring bit of news.
KRANJEC: Yeah, on Slovenia, you’re right. The parliament adopted the law on the agency that would try to carve out bad assets from the banks. But the precise modality of the eligibility of these bonds has not been decided yet, so I am not able to tell you whether this would be acceptable or not.
I can only tell you that pool of collateral, which is available to Slovenian banks, is at the moment sufficient. And it’s not an urgent matter. I understand that it will be elaborated in the further steps on this law.
STAFF: Thank you. The row behind, please. Yes?
QUESTION: Stefan Wolkam (ph), Frankfurter Allgemeine Zeitung. Have you seen any signs that the pure announcement of the OMT framework has affected easening of credit conditions in the weak countries? And second question is, have you discussed what could be a good measure to decide what is the acceptable level of fragmentation, financial fragmentation, and what is an unacceptable level?
DRAGHI: Yeah. On - on - on the first question, the answer is yes. We had - we had - well, you all saw what happened.
QUESTION: Excuse me - because I forgot - because the last - the figures of today, the August figures show that, especially in Spain, it’s getting worse.
DRAGHI: Well, actually, the - you - also what happened, there was a substantial significant improvement all across financial markets. Then there was a correction. And - and basically now, we - if we take a snapshot now with respect to, say, the beginning of August, we see that the various interest rate spreads are still at a level way below what it was in July.
We see that in - there is another - there are two. One comforting news (ph) was what I said before about Portugal having issued the first five-year bond. The second - the second good news, actually, concerns Spain, that Spain has completed almost 90 percent of their funding program for the sovereign.
Can I -
QUESTION: But - but you are not aiming on the -
DRAGHI: Can I finish?
QUESTION: Oh, I’m sorry.
DRAGHI: No, no, no, I’m just saying - I’m just saying - I’m taking a snapshot of what the credit conditions are. That was your question. There had been sizable issuance by corporations and by banks since then, and, frankly, something that’s dear to our eyes - and we always look at that - TARGET2 balances or imbalances have somehow stabilized.
DRAGHI: Yes. And so that’s - that’s a good - so all in all, the - the effect’s been - has been positive. There have been sizable inflows of bank deposits in Italy. The - Spain recourse (ph) central bank financing has gone down in the last month. So, not bad.
The second question?
QUESTION: Do you have any measure to tell the difference between an acceptable level of fragmentation and an unacceptable -
DRAGHI: Oh, yeah. Now, let me finish. Not bad, but I think we have to - we have to express also a note of caution here.
First of all, volatility is still relatively high. And, second, governments will have to persevere in their reform action on all fronts, fiscal consolidation, structural reforms, the banking sector, and more generally, the financial market sector.
What is an acceptable or level of fragmentation? I - well, it’s hard to say. But certainly, when you see - when you see the same - when you see two subsidiaries of the same company located - located in two different countries, and paying completely different interest rates for their borrowing, when you see the - exactly the same individual borrower, say a young couple that has to buy a flat, and paying a completely different interest rate in mortgages, then you start asking yourself, “Maybe there is a problem here.”
Then you look around, and you see that credit flows are normal in one part of the euro area and are in - nonexistent in another part. They’re actually falling precipitously in other parts and have been falling for a long time.
When you see that you have widespread credit rationing in some parts of the euro area, when you see that there is a correlation between the movements in the exchange rates and the interest rates, that is a very strange correlation, namely that the exchange rate appreciates when interest rates go down and vice versa.
When you see that the bid-ask spreads reveal profound lack of liquidity in certain markets, when you see the levels of volatility are abnormally high, and when you see that you have the inversion of the yield curves all of a sudden and then disappearing right after an announcement, then you say you have a reasonable and possibly unacceptable level of fragmentation in the euro area.
But the issue is really - is the - the level of fragmentation becomes unacceptable when the singleness of the monetary policy in the euro area is being put into question, because that is the time when we cannot achieve our primary objective, namely, maintaining price stability in the - in the medium term across the euro area.
STAFF: The lady just next to you, and after, the lady behind, and then we will go the other block.
QUESTION: (inaudible) television of Slovenia. I would like to return to the question of bad banks. ECB had some concerns regarding the establishment of this agency or a bank. And I would like to ask you, Mr. Draghi, if these remarks still stand or - do you support this, let’s say, resolution for Slovenia?
And the second question - the question is, what are your recommendations for Slovenia regarding fiscal consolidation? Do you think that Slovenia needs a bailout?
DRAGHI: I think Marko will - will respond best to both questions. But by and large, let me say that we agree with the assessment of the IMF. That’s in the overall assessment the IMF has issued.
MARKO KRANJEC, GOVERNOR, SLOVENIAN CENTRAL BANK: Yeah, just to say a few sentences. ECB, of course, made an assessment of the law that was adopted. And we understood it in a sense that, of course, the view was that the agency, the government, and the central bank should cooperate closely in deciding how to make the bank sector more resilient.
And the second question regarding the bailout I think is much too early to say anything about it. All macroeconomic indicators at the moment point out that, if the country adopts decisive stabilization measures in the fiscal consolidation, in labor markets, in pension reforms, and, of course, in banking sector, the country would not need to apply for the program.
But it is a political decision at the end. As the president also said, in many countries, it is primarily a political decision. The central bank cannot operate in an environment which is inherently unstable from the macroeconomic point of view.
STAFF: The lady behind, please.
QUESTION: (inaudible) with the Slovenian Business Daily Finance. Being the member of the Slovenian press, my question - my question is rather similar. The decision on the OMT program has contributed enormously to calming of the situation in the markets. However, the yields on the Slovenian government bonds remain rather high and surpassing the Spanish, the yields of the Spanish government bonds. What do you believe are the factors that could calm down this situation, which is very worrisome for the Slovenian citizens?
KRANJEC: Sorry if I have to take over.
DRAGHI: It’s yours. No, no, no.
KRANJEC: Yeah, the spreads have - that you have noticed in the markets, in our opinion, do not reflect the fundamentals. You should take into consideration that the capital markets for Slovenian paper is very shallow, the transactions are rare, and one cannot judge from a single or double (inaudible) two or three transactions about the underlying fundamentals.
We believe that with adoption of the measures that I mentioned before, stabilization measures, spreads will go down. And I understand (inaudible) understand. You can verify yourself spreads have gone down. With the adoption of further measures, I believe that spreads will go down as they did in other eurozone countries.
STAFF: OK. Let’s go to the first row on the right-hand block here, yes.
QUESTION: (inaudible) CNBC. Two questions. The first one. How concerned are you that if (inaudible) actually comes into action (inaudible) derail (inaudible) essentially (inaudible) as it were (inaudible) because, as I said (inaudible) the second one is on the OMT (inaudible) if the OMT is a purely monetary measure (inaudible) dysfunctional (inaudible) markets, how can you say - how can you set political preconditions to it? Is that not a little bit like my local fire brigade telling me I can only turn on the water if you show me (inaudible) program?
DRAGHI: Well, on - on the first - on the first point, we will certainly monitor the strategic response of the issuers to our program. The OMT is not meant to induce strategic response in favor of issuing short terms by the - by the issuers. So this will be monitored.
By the way, I think - but that’s my sort of purely personal perception - is that many - all these countries - the countries that may need an OMT have now reached after many years of, I would say, difficult, very difficult process, reasonable maturities, reasonable durations in their stock of public debt.
I think it’s very unlikely they will change these durations in favor of a short-term issuance, first, because they have market access. It’s not that they don’t have market access. These countries do have market access. So there is no reason, really, to change the duration and having to do - you know, it’s not only pros. If you change the duration, you also have some serious cons. So all in all, I think it’s unlikely. In any event, the ECB will closely monitor this possible strategic response by issuers.
The second point is, really, I think it’s just the other way around. I think I did say something about this last time we had this press conference. We started thinking - when the OMT was designed, we had the perception and the evidence that there were tail risks in the euro area, namely that there was a bad equilibrium for certain countries, in certain markets. It means that expectations were self-feeding and would create in the end disruptive scenarios.
So that’s what - that’s the case for the policymaker, which in this case is the ECB, to step in with a program. At the same time, we shouldn’t forget how these countries got into a bad equilibrium to begin with, namely, bad policies or, in some cases, no policies at all for a long period of time, while the rest of the world was changing completely.
So the first conclusion was that any monetary policy will have no effect if the other policies wouldn’t change. That’s why conditionality is so important. It’s actually - as I said at the beginning - is what makes the monetary policy effective, and it’s what protects the independence of the ECB. So it’s not really - I wouldn’t buy the example - the example you made. I think it’s really an integral part of this.
The second question - well, this was the second question, really. Thank you.
STAFF: Yes, your neighbor. Next question, yes? First row.
QUESTION: It’s Claudio Penet (ph) from El Pais. Mr. Draghi, are you comfortable with the current situation with Spain (inaudible) and even Germany? Or did you expect a more - a more rapid reaction from the political side? And, secondly, if I may, do you think that Spain has a possibility to resolve its crisis without European aid?
DRAGHI: I - unfortunately, I cannot comment on either of the questions, because it’s very much - the decision whether to start this process is entirely in the hands of governments. As - as I said on and on and on, I think the OMT, the ECB has done what really was possible, and the OMT would certainly create an environment which is conducive to reforms, because it could remove the - what we call the re- denomination risk, so it could remove tail risks, but then, in the end, the initiative, it’s in the hands of governments. And I could not comment on the second item, either. Thank you.
STAFF: Your neighbor? And after the two last questions, yeah.
QUESTION: Alessandro Malio (ph) (inaudible) from Italy. You’ve spoken several times about the risks and now re-denomination risks. Yields have come down since your announcement in July and then your further announcement. How much of these risks have been removed? And do you think it’s just a temporary effect to a return in case the OMT is not applied?
And as you’ve made the OMT dependent on - that’s the second question - on a request and the governments seem to be extremely reluctant to make this request - and the monetary policy transmission mechanism is still broken, have you thought about any other solution that you could apply in that case?
DRAGHI: Well, for the second question, for the time being, no. I think we - we have the sense that we - we’ve - it was a very important decision which has many dimensions. We had to cope with all this. And it’s now in place. We are ready, and we have a fully effective backstop mechanism in place. Now it’s really - it’s really in the hands of governments. And as I said many, many times, the ECB cannot replace the action of governments.
The - the other thing is - is your question about the level of interest rates, whether they reflect re- denomination risks and so on. As I said last time, we are considering a variety - a variety of indicators here, one of which is the interest rates. Then we also consider, as I said before, the bid-ask spreads, the liquidity, the shape of the yield curves, the volatility. So there is a variety of indicators which will certainly inform our monetary policy assessment.
STAFF: OK, the question in the first row, and after the last question, we’ll be there.
QUESTION: Marie Carafeo (ph) (inaudible) for the ESM, about the recapitalization of banks through the ESM, do you see any possible way out? And if you see it being discussed, if yes, which one, please?
And then the second question. The markets are already discussing how - the target at which you could intervene in the markets once that Spain or another country could ask for aid. Do you have a special target or range of target?
DRAGHI: Now, to the second question, the answer is no. We, as I said again, before - just before, we are looking at a variety of indicators. And we will look at all of them, because we have to have a monetary policy assessment.
What is the degree of disruption, to go back to the question I had before? What is the degree of disruption of our monetary policy transmission channels? That is certainly a question we have - we have to answer.
The - on the first question, the ESM, as I said before, it’s really very much in the hands of governments. They took the initiative a few months ago, a year ago, year-and-a-half ago, to create the ESM. Now that it’s about to enter into force, there are certain limitations that are being brought forward to the table. There is going to be a political discussion, and I - frankly, it would not be right for the ECB to prejudge the outcome of this discussion, expressing views on it.
STAFF: The last question, on the seventh row, please.
QUESTION: Hello, Mr. Draghi (inaudible) from (inaudible) German television. I’d like to ask you, on the supervision of banks, I would like -
DRAGHI: Sorry, the -
QUESTION: The supervision of banks.
QUESTION: I would like to ask - to ask how, how would - do you want to ensure that both tasks of the ECB will be separated? Because at least in Germany, there are still important voices who have many concerns about this potential conflict of interest. And also, Mr. Weidmann recently in an interview raised these concerns. So what would be your - your response to that?
DRAGHI: I think - I think they’re very, very important concerns that we are addressing with the proper internal organization. The proposal doesn’t leave much option to this, so we have to organization - if - if in the end will be the ECB, the institution, we certainly have - and this is - was - I think one of the principles that I stated at the very beginning of this - of this - of this discussion, the - we have to make sure that we have an organization which de facto assures separation between the monetary policy and supervision.
And this can be done delegating - fully delegating to the supervisory board the tasks. So fortunately, the commission proposals - proposal foresees that possibility for the Governing Council to delegate all the supervisory tasks to the supervisory board.
So the means - the - say the management, the - internal organization means are there. And I - I think I can - I mean, I believe it can be achieved.
STAFF: Thank you. Thank you for your attention.
DRAGHI: Thank you.
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